Friday Flash: On the wall

A broker I talked to the other day saw the writing on the wall in the mid-80’s.

His company was going to lose the split war with agents. 

New profit centers were needed. 

So he created them. 

A mortgage company, a title company, an insurance partnership — these would sustain his company into the future. 

In time, he took the commission split conversation with agents pretty much off the table by moving to a very agent-favorable cap/split plan for all of his agents. He had built the model that allowed him to do this. 

He’s still kicking ass. 

Today, over 30 years later, all the cool kids — Zillow, Redfin, Compass, HomeLight, Opendoor, Knock, and others — are betting on this same model.

They’re buying title companies, investing big into mortgage origination, and talking a lot about “attach rates” and “ecosystem economics.” These businesses are attractive because they offer security as well as profits, jacketed as they are in a thick regulatory armor shielding them from disruption.  

There’s tension here, of course. As the newer companies move into these businesses, they threaten traditional brokers who now depend on their title and mortgage operations to stay afloat. 

Moreover, the newer companies are doing a great job selling the benefits of integrated services to both consumers and agents, couching them in a vision of a new transaction experience that is faster, simpler and less stressful. 

Most traditional brokers frame their ability to offer a suite of services to buyers and sellers in the tired, emotionally empty language of “one-stop-shopping” and don’t think strategically about marketing their ancillary businesses to their own agents. 

These incumbents need a new story fast if they’re going to preserve their position. 

The writing is on the wall. 

Need to know

Compass dropped their S-1. Big revenue, big losses… kinda what we expected. Lots of dubious (IMO) causal assertions made between their tech and both company and agent performance. Most interesting to me: only one passing mention of their “Private Exclusives” program, which could very well account for their much-touted agent productivity gains as much or more than the tech does. But proclaiming that holding listings off the open market so you can double-end them is an important part of your strategy was perhaps deemed impolitic. It’s certainly not as alluring as the tech story. Sigh.

…

Housing inventory remains desperately scarce. Glenn Kelman remarked in Redfin’s Q4 earnings call this week that the housing market is currently like “a Soviet-era supermarket with most of the shelves empty.” Few observers see this changing anytime soon.

…

Last week, Zillow delivered on what it had alluded to in its Q4 earnings call: making the Zestimate a live offer in several markets. Remember when we used to go to Amazon for deals on things like, say, toothpaste? Now, the “Amazon price” is pretty much just the price of toothpaste. We’re gonna see pretty quickly here if the Zillow price for a home becomes, effectively, the market price. With hundreds of thousands of people with an offer “on the table” for their home right now, we’re also going to get a speedier test of the hypothesis — offered by many, including Zillow CEO Rich Barton — that making it easier to sell and buy homes will increase transaction volume (and perhaps, in time, restock those empty shelves). 

JUST COOL

The world’s first permitted 3D-printed home is for sale and Ikea announced that it will begin selling tiny homes that start at around $50,000. 

That’s it for now. Have a restful weekend.